Socar vice president Vitaly Baylarbayov is scheduled to visit Athens tomorrow to dissuss details concerning the ongoing and delayed attempt for completion of a 66 percent sale of DESFA, the natural gas grid operator.

Over the weekend, RAE, the Regulatory Authority for Energy, reached a decision on the network usage fee price level to be proposed for DESFA as well as an investment yield figure.

A meeting in Athens less than a fortnight ago between Prime Minister Alexis Tsipras and Socar president Rovnag Abdullayev, who insisted on seeing the Greek head of state, helped ease the tension generated between the two sides as a result of the unfinalized deal. The less highly-strung conditions are allowing officials to focus on technical matters but further political intervention cannot be ruled out if a deal remains beyond reach. Socar has extended a letter of guarantee for the DESFA sale by a month until the end of October.

Socar emerged as the winning bidder of an international tender in 2013 for 66 percent of DESFA at a price of 400 million euros. The European Commission eventually decided that the Azerbaijani company must surrender at least 17 percent to a certified European operator, lowering Socar’s stake rights to no more than 49 percent. Most recently, Greece’s energy ministry engineered an amendment that significantly reduces DESFA’s revenue potential. This move caused a stand-off and prompted Socar officials to lower their estimate of the Greek operator’s market value. Greek officials have remained adamant on the sale price level.

Technical issues at play in the current negotiations include finding a satisfactory dividend yield rate for DESFA’s shareholders. Also, the officials are examining a network usage tariff increase that would also be reasonable for industrial enterprises and households.

All scenarios are possible at this stage. Neither the sale’s completion nor debacle has been ruled out.

The role to be played by Italy’s Snam, a potential buyer of the stake that Socar needs to surrender, will be pivotal. Snam may end up acquiring as much as 30 percent of DESFA if the deal proceeds.

A meeting in Athens yesterday between Prime Minister Alexis Tsipras and Socar president Rovnag Abdullayev has helped diffuse the tension generated by a communication breakdown over recent months between the Greek government and Socar officials in the effort to complete the troubled sale of DESFA, Greece’s natural gas grid operator.

Now that the political tension has been appeased negotiations will shift to the sale effort’s technical aspects. The two sides, which have an additional month to seek a solution following an extension to the September 30 deadline, will negotiate through a working group.

The Greek side will be led by the Prime Minister’s adviser Dimitris Liakos and Minister of State Alekos Flambouraris, while Socar’s Vice President for Investments and Marketing Elshad Nassirov and Anar Mammadov, until recently Director General of Socar Energy Greece, will lead the Azerbaijani team.

Socar emerged as the winning bidder of an international tender in 2013 for a 66 percent stake of DESFA. The European Commission eventually intervened to demand that the Azerbaijani company surrender at least 17 percent to a certified European operator, thereby keeping Socar’s stake to no more than 49 percent. Just recently, Greece’s energy minister Panos Skourletis imposed a revenue-restructing measure on Socar to protect consumers. The move angered Socar officials and led to the communication breakdown.

The working group will need to find a solution offering DESFA shareholders a satisfactory dividend yield. Also, DESFA’s network usage fees will need to be raised at a reasonable level so as to satisfy the operator and, at the same time, not overburden the industrial sector and households in terms of energy costs.

Though it remains to be seen how such a balance can be struck, certain pundits believe it is achievable. As previously reported by energypress, DESFA’s network usage fees could be raised by between 30 and 35 percent, instead of 23.8 percent, as had been proposed by DESFA’s board to RAE, the Regulatory Authority for Energy. The operator’s regulations, prior to the Greek energy minister’s recent revenue-restructing measure, permitted a 68 percent network usage fee increase.

The negotiators will also need to work on stabilizing the network usage fee pricing mechanism so as to protect DESFA from any future ministerial interventions that could affect the operator’s revenues.

Skourletis, viewed as an obstacle by Azerbaijani officials, was not present at yesterday’s meeting between the Prime Minister and the Socar boss. Some analysts believe his detachment – from here on – from the DESFA sale effort weakens his political standing. Others believe Skourletis’s exclusion was arranged between him the Prime Minister to boost the prospects of a deal.

Konstantinos Xifaras, managing director at DESFA, the natural gas grid operator, has resigned from his post after discussing the prospect with the leadership at the energy ministry, according to sources.

The ministry’s top-ranked officials believe Xifaras’s leadership at DESFA no longer facilitates the operator’s smooth functioning, nor is it constructive in the effort for an agreement with Azerbaijani energy company Socar to complete the operator’s pending privatization.

Xifaras appears to have also unsuccessfully submitted his resignation to the energy ministry in the past.

The operator’s current president Sotiris Nikas may also take on the managing director’s role.

Although DESFA is an independent subsidiary of DEPA, the Public Gas Corporation, and a certified operator of the country’s natural gas grid, specific supervisory council procedures in line with the corporation’s regulations will be carried out for the DESFA official’s resignation and replacement.

Azerbaijani state oil company Socar expects compromise proposals from the Greek government for the successful completion of a deal concerning the acquisition of a stake in DESFA, Greece’s natural gas grid operator, Anar Mammadov, Director General of Socar Energy Greece, told reporters in Izmir, Turkey.

Mammadov noted that the new rules for calculating tariffs for gas in Greece will have a negative impact on the profitability of DESFA.

“Under the new conditions, the project ceases to be as interesting to us as it was,” Mammadov said. “Therefore, we are ready to work together with the Greek government and offer them a compromise. We are currently interested in the project, but it must be also reasonable from a commercial point of view, and under the new conditions, Socar may not be quite ready for privatization.”

Mammadov added that Socar expects to get Greece’s counteroffer.

“The Greek government has been informed of our position,” he said. “If it is interested in completing the process, it has to show it,” Mammadov remarked. “We do not intend to file a case in court, but there is a probability that we will have to abandon this project. Socar is ready to fulfill all its commitments, but on equal terms,” he continued.

“The tender’s letter of guarentee will expire on September 30,” he said. “It is a simple procedure to extend it, but at present, we do not see enough reasons to do that.”

Mammadov added that according to preliminary estimates based on the new tariff levels, the Greek company will lose between 40 to 50 percent of its value.

Azerbaijani state oil company Socar is not going to abandon the purchase of a stake in DESFA, Greece’s natural gas grid operator, Socar’s president Rovnag Abdullayev told reporters today.

“We won the tender and we’re not going to abandon the deal [with DESFA],” Abdullayev said. “We don’t talk about appealing to a court, but we will defend our interests till the end. The originally negotiated rules have been violated. We are now waiting for justification from the government of Greece. Under the new rules, DESFA’s value should be twice cheaper, so we are in talks with the Greek government.”

SOCAR won a tender in 2013 on the purchase of a 66-percent stake in DESFA for 400 million euros.

Earlier, Azerbaijan’s Energy Minister Natig Aliyev said that the deal on Socar’s purchasing the 66-percent share in Greece’s DESFA will be completed after Italy’s Snam purchases 17 percent of that share.

Regarding Italy’s Snam, the company, just like Socar, is in talks with the Greek government regarding the situation, Abdullayev said.

In July, Greek Energy Minister Panos Skourletis accused the European Commission of delaying the deal on selling a share in Greece’s DESFA to Socar. Skourletis said that a number of conditions, set by the European Commission, greatly slowed the privatization process of the gas operator.

In particular, the company will become a passive shareholder, not entitled to vote in the management of the company, as a result of decreasing SOCAR’s share in DESFA up to 49 percent.

Greek MPs stressed that the problems with the privatization of DESFA may deprive the country’s economy of Socar’s huge capital injections.

As an end-of-September deadline approaches for a letter of guarantee provided by Azeri energy Socar in its effort to acquire a majority stake of DESFA, Greece’s natural gas operator, the sale procedure seems doomed to sink, judging by the positions maintained by both sides.

Until now, the Greek government has not appeared prepared to discuss any further changes to a recent revision that repelled the potential Azeri buyer by severely limiting the operator’s network usage fee hikes, and, therefore, revenue potential. At the other end, Socar is indirectly informing that it will not take any initiatives for a solution.

The Azeri company has indicated it will come forward for an agreement on the DESFA deal only if offered compensation for revenues lost as a result of the revision. A reduction in the sale price, established through an international tender completed in 2013, is not possible as such a change would terminate the current tender. As an alternative, Socar officials, in the past, proposed indirect compensation in the form of the entire amount of DESFA’s deposits, estimated at 100 million euros. But this was rejected by Greek officials.

Socar acquired the right to purchase 66 percent of DESFA after emerging as the winning bidder of the 2013 tender. The slow-moving procedure was further delayed by more recent intervention from the European Commission, demanding that the Azeri firm surrender 17 percent of DESFA to a certified European operator. Italy’s Snam is believed to have reached an agreement with Socar for this 17 percent share.

However, the Greek government, especially energy minister Panos Skourletis, its head representative for the DEFSA sale, appears anything but willing to push for a solution at this late stage of the sale attempt. Instead, its permanent end and relaunch as a new and revised procedure based on a current tender seeking to sell part of IPTO, the power grid operator, appears likeliest.

The IPTO sale effort, shaped by Skourletis and his team, intends to transfer 51 percent of the power operator from power utility PPC, the parent company, to the Greek State, offer 24 percent to a strategic investor and the remaining 25 percent through the bourse.

US officials – keenly anticipating Socar’s entry into the Greek market, and, by extension, the wider southeast European market, as part of a plan to diversify natural gas supply in Europe – have expressed their disappointment over the DESFA sale’s stalemate situation. It remains to be seen whether this discontent is transformed into increased western pressure in the coming weeks for the DESFA deal’s finalization through the current tender.

Though the Azeri energy company Socar has cut off all communication with Greek officials for the completion of the DESFA (Natural Gas Operator) sale since July – when Greek Parliament ratified an amendment severely limiting the operator’s capacity for network usage hikes and, therefore, revenue potential – Socar continues to consider the agreement open, according to sources.

Socar, sources have informed, is waiting for proposals from Greece’s energy ministry, which could unblock the procedure and lead to the finalization of an agreement giving the Azeri company a 66 percent stake in DESFA. Socar, the winning bidder of an international tender in 2013, would then need to surrender 17 percent to a certified European operator, as was demanded at a latter stage of the sale’s procedure by the European Commission.

Socar does not appear willing to take a first step towards reconciliation as it believes the Greek side is responsible for the sale effort’s latest obstacle.

Socar has described the Greek energy ministry’s decision to revise DESFA’s asset base, limiting the operator’s revenue potential, as a unilateral action.

“There has been no communication with Mr. [Panos] Skourletis [Greece’s energy minister] since the day the amendment was ratified in Greek Parliament,” Anar Mammadov, managing director of Socar Energy Greece, has been quoted as telling sources. The Azeri official was called back to Baku late in July, following the DESFA revision, for company discussions on Socar’s next move. Legal action has not been ruled out.

The two sides have until the end of September, when a letter of guarantee submitted by Socar expires following three extensions, to keep the procedure alive. This letter of guarantee was intitially thought to have an end-of-August expiry date.

Skourletis, in comments offered to the Athens News Agency yesterday, noted that the DESFA sale was not one of the privatizations the Syriza-led coalition has committed itself to. DEFSA’s tender was launched by the country’s previous administration.

The energy minister told the agency that his ministry’s DESFA-related revision is within the legal framework and prevents excessive network usage hikes that would have burdened Greek households and, primarily, undermined local industrial production.

“If the prospective investors do not like this, I believe Greek households and businesses do,” Skourletis told the agency.

Given the current positions of both sides, it remains difficult to imagine any Greek proposal that could unblock the sale’s stalemate situation. As is widely believed, both sides could be playing for time, all the way through to the letter of gurantee’s expiry date at the end of September, so as to avoid being held responsible for the sale’s failure.

Socar has been legally entitled to a repercussion-free withdrawal from the DESFA deal since last year, when 24 months elapsed following the tender’s completion.

It is believed that Italy’s Snam, a prime candidate for the 17 percent share of DESFA which Socar would need to surrender, could be interested in acquiring a minority DESFA stake of around 31 percent as part of an agreement that would give the Greek State a majority share, similar to the sale now being attempted for IPTO, the power grid operator. However, Socar would need to offer its consent. Otherwise, a new tender must be launched.

Azeri energy company Socar has just over one month to decide whether to keep alive its long-running agreement for the acquisition of a 66 percent stake in DESFA, Greece’s natural gas grid operator, before it surrenders 17 percent to a certified European operator, as was demanded at a latter stage of the sale’s procedure by the European Commission.

A letter of guarantee submitted by Socar for the agreement is set to expire at the end of September following three extensions.

The agreement, reached when Socar emerged as the winning bidder of an international tender in 2013, is now under serious doubt following the recent ratification in Greek Parliament of an amendment that revised DESFA’s asset base and limits the operator’s earning potential. Socar officials have complained this move was unilateral.

If Socar does not extend the deal’s current letter of guarantee, the procedure will have essentially sunk, while reports of a looming departure by Azeri officials from Greece would most likely be confirmed. This could also entail the closure of an office maintained by Socar in the Greek capital.

Socar officials made clear their disapproval of the DESFA amendment, which was submitted to Greek Parliament by energy minister Panos Skourletis in mid-July and drastically limits the operator’s leeway for network usage hikes. But the Azeri officials have since remained completely silent about their intentions.

Socar has been legally entitled to a repercussion-free withdrawal from the DESFA deal since last year, when 24 months were clocked up following the tender’s completion.

Skourletis, the energy minister, has, in past official comments, admitted that the current DESFA tender’s debacle would provide Greece with an opportunity to renegotiate new terms based on a current privatization plan for IPTO, the power grid operator.

A tender offering 24 percent of IPTO to a strategic investor is now in progress. The plan also entails transferring 51 perent of IPTO from power utility PPC, the parent company, to the Greek State, and offering the remaining 25 percent to investors through the bourse.

The ruling Syriza-led coalition inherited the DESFA sale and its terms from the country’s previous administration.

The fate of a long-running and unfinalized tender won by Azeri energy company Socar for a 66 percent stake of DESFA, Greece’s natural gas grid operator, will be cleared up in three weeks, when the sale procedure’s current letter of guarantee provided by the Azeri company expires. If not renewed by the end of August, a new procedure will need to be established and launched from scratch.

According to energypress reports, Socar, in more recent times, has not made any contact, or taken any initiatives, to finalize the deal.

The ratification of an amendment submitted to Greek Parliament by energy minister Panos Skourletis in mid-July, which drastically subdues the operator’s leeway for network usage hikes, was badly received by the Azeri company.

Prior to this, the deal had already been delayed by European Commission intervention, last year, ordering SOCAR to surrender a 17 percent share of DESFA’s 66 percent stake it had agreed to purchase after winning an international tender in 2013. This would limit Socar’s stake to 49 percent. Italy’s Snam has widely been considered a definite candidate for the surrendered 17 percent.

The government’s network usage hike-limiting amendment – a particularly favorable development for local industry, which was more susceptible to increases, and also positive, to a lesser degree, for households – reduces DESFA’s market value by 50 percent, Socar officials have claimed.

The lack of any recent contact between Greek and Azeri officials for the DESFA sale strongly suggests the current tender is headed towards a dead end. If the Azeri side does not conjure up a last-minute surprise move, then the focus will be on the next moves to be made by Skourletis, the energy minister.

Asked about the prospect of the DESFA sale sinking at a recent news conference, the minister noted that “nothing is bad, all is good,” a comment implying that he has already examined future alternatives.

The ruling Syriza-led coalition inherited the DESFA sale and its terms from the country’s previous administration. For Skourletis, the procedure’s eventual debacle, to be followed by a new and revised effort, is probably a prefered option. The government believes the current tender’s terms are tipped in favor of the buyer.

Skourletis would like to base the DESFA sale on the model used for IPTO, the power grid operator, which, if carried out successfully, will leave the Greek State with a 51 percent stake. A tender offering 24 percent of IPTO to a strategic investor is now in progress. The remaining 25 percent will be offered to investors through the bourse.

If a repeat of the IPTO model is not accepted by the country’s lenders for DESFA, then the government may seek to launch a new tender offering 66 percent of the gas operator with more favorable terms for the Greek State.

Anar Mammadov, managing director of Socar Energy Greece, the Azeri energy company’s local subsidiary, has expressed dissatisfaction over Greek energy minister Panos Skourletis’s submission of an amendment to Greek Parliament intended to drastically reduce the regulatory asset base (RAB) of DESFA, the natural gas grid operator, used to determine the operator’s revenues.

Socar had agreed to purchase a 66 percent stake of DESFA after winning an international tender in 2013, but, more recently, the European Commission intervened to demand that a 17 percent share be offered to a certified European operator, which will reduce the Azeri firm’s control to 49 percent.

Mammadov told energypress that Socar had never insisted on a network usage fee hike of 68 percent for consumers, while describing the ministry’s decision to take action without consulting the Azeri company as an unpleasant unilateral development. The Azeri company was apparently informed of the Greek minister’s move through media reports.

“We will now analyze the consequences of the move and seek a meeting with the minister as soon as possible,” Mammadov told energypress.

RAE, the Regulatory Authority for Energy, is responsible for endorsing data and revising network usage fees.